Ethical Behavior and Behavior

¶ … HRTC and violation of Internal Revenue Service (IRS) standards. If not addressed, these issues could have serious legal ramifications on HRTC, not to mention the potential loss of public confidence.

Whether in for-profit or non-profit organizations, ethical challenges exist in virtually all types of organizations (Rhode & Packel, 2009). For non-profit organizations, expectations of ethical conduct are particularly higher as the organizations are generally involved in charitable causes. Nonetheless, achieving absolute ethical behavior remains a daunting challenge for most non-profit organizations. On its part, HRTC engages in "ethical' behavior solely for the purpose of gaining profits for the goodwill in generates. In other words, the organization is involved in a charitable cause not for the purpose of enhancing community welfare, but as a means toward a self-serving end (profits and the accumulation of wealth). Taking advantage of non-profit status to make profit and accumulate wealth amounts to unlawful and unethical behavior on the part of the organization.

HRTC is registered as a non-profit organization under Section 501(c) of the United States Code. This regulation exempts non-profit organizations from taxation. The regulation, however, requires that profits or earnings generated by a non-profit organization may not inure to any individual or shareholder (Internal Revenue Service [IRS], 2017). Simply, non-profit organizations cannot be used to create wealth for individuals or be organized to serve private interests. Therefore, HRTC is acting unethically as it is using its non-profit status to achieve a self-serving end. Whereas the organization is involved in a noble cause, its greater, hidden motive is to accumulate wealth, which is tantamount to violation of the legal standards applicable to non-profit organizations. More importantly, exploiting non-profit status for self-interest represents a significant ethical failure on the part of HRTC. As a charitable organization, the organization is held by the public to a higher moral standard, meaning that preserving that moral integrity is arguably more important than anything else.

HRTC's behavior is not an uncommon phenomenon. Indeed, the U.S. Tax Court has adjudicated several cases involving non-profit organizations using their status to act in contravention to their specified mission. The case of Capital Gymnastics Booster Club (petitioner) versus Commission of Internal Revenue (respondent) is an ideal example (U.S. Tax Court, 2013). In this case, the petitioner, a gymnastics booster club, was granted non-profits status in 1988 under Section 501(c)(3) as an organization committed to promoting amateur sports competition. As per its financial report for the fiscal year ending June 30, 2003, the organization's members were parents of young athletes from about 240 families. All athletes were members of teams at a local private gym, to which each individual family paid tuition and other relevant fees. The teams competed in tournaments, which required a great deal of extra funds to run. The extra funds were collected and administered by the gym. It was mandatory to be a member of the gym so as to participate in the team. The fees families paid to the gym were used to cover charges for the competition as well as the coach's travel expenditures.

A family could pay its athlete's annual assessment fee either by cash or taking part in the gym's fundraising program. In the 2003 fiscal year, nearly half of the families (46%) took part in fundraising that generated $35,326 in net earnings. The gym used 93% of the earnings to reduce assessment fees by 50-70% for families that took part in the fundraising program. The gym did not make any reductions for families that did not participate. IRS examined the gym's operations for the 2003 fiscal year and found that the gym "was not operated exclusively for tax-exempt purposes under IRC sec. 501(c)(3)" (US Tax Court, 2013). The court specifically established that the gym's "net earnings inured to the benefit of its fundraising parent members, and it conferred substantial private benefit on children of those fundraising families." This case is a perfect example of non-profit organizations using their status to pursue private interests, which violates the legal requirements for non-profit organizations.